Rell, Dems offer competing spending plans

By Ken Dixon, STAFF WRITER

Published 3:00 am, Tuesday, September 1, 2009

HARTFORD -- Majority Democrats in the General Assembly and Republican Gov. M. Jodi Rell continued their budget battle on parallel tracks Thursday, offering competing spending-and-tax plans that may yield a compromise sometime in August.

But without a deal, Connecticut is one of only three states, including Pennsylvania and North Carolina, that does not have a new budget.

Democratic financial committees, whose chairmen admitted that their two-year, $37.8 billion budget may never get introduced for debate in the House and Senate, approved an overall package similar to one Rell vetoed on July 1.

After the governor issued an executive order to keep state government functioning for a second month without a new budget starting Aug. 1, Rell Thursday afternoon released her own $36.9 billion budget proposal, comparing it graphically to the Democrats.

She called for legislative leaders to return to bipartisan budget talks next week.

Rell's plan would cut current spending by an additional billion dollars and raise taxes by $391 million, while Democrats would cut $130 million over the biennium. In all, Democrats would raise spending by $700 million over the budget that ended June 30, according to nonpartisan legislative staff.

A 10 percent tax increase on alcohol and a dollar-a-pack hike on the current $2 cigarette tax, would be combined with a three-year, 10 percent surcharge on corporation taxes as the centerpiece of Rell's proposed revenue package.

"They don't have to smoke," Rell said. "They don't have to drink."

The rise in cigarette prices alone would generate more than $227 million over the two years, while Rell's corporate surcharge would raise $87 million in the first year and $54 million in the second. Rell would save $4 million through unspecified courthouse consolidations.

Democrats would add 75 cents a pack on the cigarette tax; increase the income-tax rates to up to 7 percent for the state's wealthiest; and create three-year programs to add surcharges to the corporation tax and the estate and gift tax.

The increase in the tax on high incomes would push the current 5 percent maximum rate to 6 percent on joint incomes of $500,000; 6.5 percent on $600,000 incomes; and 7 percent on those in excess of $750,000.

The higher taxes on the rich would generate $744 million retroactive to 18 months and $500 million in the fiscal year that starts July 1, 2010, under the Democratic proposal.

"The Democratic majority cannot and will not cut state spending," Rell told reporters in her Capitol office. "Their proposals are unsustainable and unaffordable. People of our state cannot afford that and I will not support that and I will not sign that into law."

Speaker of the House Christopher G. Donovan, D-Meriden, told reporters in the Capitol Press Room early Thursday evening that Rell took a positive step when she agreed this week that revenue needs to be raised. But her plans to reduce social spending, including dental programs for the elderly, are not acceptable.

"There are very many cruel cuts to our people," Donovan said. "There are a lot of cuts here that go after the most vulnerable people in our community while not asking for the wealthiest to do their share."

Donovan balked at promising to debate the Democratic bill because while he has a solid 114-37 majority, the 24-12 edge in the Senate means all Democrats have to be on board there to override Rell.

Donovan, who after the legislative session ended in early June without a budget deal made visits across the state to alert towns and cities to the effect of Rell's proposed reductions, said he may again use the tactic.

"With these cruel cuts here we're going to go to the people again," Donovan said. "Right now we're at a standoff and other parties should intervene and that's the public."

Sen. Dan Debicella, R-Shelton, said that while Democrats claim to have cut $261 million from their earlier budget, there are less than $40 million in spending reductions and $220 million in "gimmicks" and one-time revenues that cannot be counted on when the next budget cycle begins in 2012.

Among the Democratic tactics is to save $31 million by not contributing for two years to the retirement fund for state judges.

Also compounding the long-term budget problem is the use of the $1.4 billion emergency reserves, plus $1.5 billion in federal stimulus money to attack the $8.6 billion deficit in the two-year budget period that started July 1. Without that money in 2012, plus a plan to borrow $900 million to balance the budget that ended June 30, the state's structural deficit will become even more onerous than today's.

"The spending side of the budget before us today will force the largest tax increase in Connecticut history and unacceptable levels of borrowing not just for the 2009 deficit, but for securitization in the future as well," said Debicella, ranking member of the Appropriations Committee, before voting against it.

House Minority Leader Lawrence F. Cafero Jr., R-Norwalk, who sat on the Appropriations panel as a non-voting member Thursday, said higher taxes will hurt the state's economy, which is already reeling from the nationwide recession.

"This biennium is the absolute worst time to raise taxes and therefore to put our budget in balance, which we are constitutionally required to do, we have to make some tough choices with regard to spending," Cafero said. "With due respect and I'm sure Democrats can characterize their own ideology, but there has been some resistance to that and the feeling has been that we can only reduce our spending so much."

Cafero argued that holding off paying into the judges' retirement fund for two years is not a real budget cut, because the state will have to pay into the program in the future.

First-term Sen. L. Scott Frantz, R-Greenwich, said it was inevitable that the state's budget hit a "brick wall," because of steady growth of 7 percent over the last 25 years.

"It really does boil down to what this tax base can afford," Frantz said. "If we lose the tax base, we lose government as we know it today in the state of Connecticut and everyone ends up being a loser."

"I think today's a very important step in getting us to consensus," said Rep. Cameron C. Staples, D-New Haven, co-chairman of the Finance Committee. "To lessen the burden in 2012, we need increases in revenue that will be there in 2012."

Rep. Themis Klarides, R-Derby, a member of the Finance Committee, said she's deeply worried about the impact of the budget two years from now, but the Democratic budget will encourage the wealthy to move away and take jobs with them.

"The people who can most afford to leave this state have jobs and the way to get out of this recession is to have jobs," Klarides said. "It's about helping to get this state out of this recession. What will happen in two years? More taxes."